Rev. Rul. 73-269

In connection with providing local telephone service, a telephone company provides a special type of telephone for an additional charge. The subscriber has the option of paying a monthly amount for use of such special phone, or he may pay a lump-sum that will entitle him to use it for as long as he subscribes for the telephone service.

Section 4251 of the Internal Revenue Code of 1954 imposes a tax on amounts paid for local telephone service, toll telephone service, and teletypewriter exchange service.

Section 4252(a) of the Code includes within the definition of "local telephone service" any "facility or service provided in connection with" local telephone service.

Held, whether a subscriber elects to pay for the use of a special telephone on a monthly or lump-sum basis, the amount paid for its use is an amount paid for a "facility or service provided in connection with" local telephone service, and is, therefore, subject to the tax imposed by section 4251 of the Code, and not an amount paid for the purchase of a phone, which amount would not be subject to tax. The fact that the subscriber elects to pay a lump-sum rather than a monthly payment does not provide him with any ownership rights to the phone, since he is entitled to use it only for such time as he subscribes for the telephone service.